Search

Begin New Search Political Geography Global Focus Publication Year within 25 Years

5851. Exchange Rates and Fundamentals: A Generalization

Author:
James M. Nason and John H. Rogers
Publication Date:
09-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Exchange rates have raised the ire of economists for more than 20 years. The problem is that few, if any, exchange rate models are known to systematically beat a naive random walk in out of sample forecasts. Engel and West (2005) show that these failures can be explained by the standard-present value model (PVM) because it predicts random walk exchange rate dynamics if the discount factor approaches one and fundamentals have a unit root. This paper generalizes the Engel and West (EW) hypothesis to the larger class of open economy dynamic stochastic general equilibrium (DSGE) models. The EW hypothesis is shown to hold for a canonical open economy DSGE model. We show that all the predictions of the standard-PVM carry over to the DSGE-PVM. The DSGE-PVM also yields an unobserved components (UC) models that we estimate using Bayesian methods and a quarterly Canadian--U.S. sample. Bayesian model evaluation reveals that the data support a UC model that calibrates the discount factor to one implying the Canadian dollar--U.S. dollar exchange rate is a random walk dominated by permanent cross-country monetary and productivity shocks.
Topic:
Economics, Finance, and Exchange Rate Policy
Political Geography:
Global Focus

5852. Expected Consumption Growth from Cross-Country Surveys: Implications for Assessing International Capital Markets

Author:
Charles Engel and John H. Rogers
Publication Date:
09-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Survey data show that the expected growth rates of consumption across countries vary widely and are not highly correlated. This data contradicts the simplest of open-economy models in which there is a freely traded non- state-contingent bond and purchasing power parity holds. We explore two alternative explanations for the finding: that households in each country in effect face different ex ante real interest rates or that there are significant credit constraints, so that expected consumption growth rates are driven largely by expected income growth. The empirical evidence strongly supports the latter hypothesis. These findings challenge the modeling of consumption that is at the heart of many, if not most, macroeconomic models.
Topic:
Economics, Finance, Interest Rates, and Credit
Political Geography:
Global Focus

5853. Soft Information in Earnings Announcements: News or Noise?

Author:
Elizabeth Demers and Clara Vega
Publication Date:
10-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper examines whether the “soft” information contained in the text of management’s quarterly earnings press releases is incrementally informative over the company’s reported “hard” earnings news. We use Diction, a textual-analysis program, to extract various dimensions of managerial net optimism from more than 20,000 corporate earnings announcements over the period 1998 to 2006 and document that unanticipated net optimism in managers’ language affects announcement period abnormal returns and predicts post- earnings announcement drift. We find that it takes longer for the market to understand the implications of soft information than those of hard information. We also find that the market response varies by firm size, turnover, media and analyst coverage, and the extent to which the standard accounting model captures the underlying economics of the firm. We also show that the second moment of soft information, the level of certainty in the text, is an important determinant of contemporaneous idiosyncratic volatility, and it predicts future idiosyncratic volatility.
Topic:
Economics and Finance
Political Geography:
Global Focus

5854. Testing the Expectations Hypothesis When Interest Rates are Near Integrated

Author:
Meredith Beechey, Erik Hjalmarsson, and Par Osterholm
Publication Date:
10-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Nominal interest rates are unlikely to be generated by unit-root processes. Using data on short and long interest rates from eight developed and six emerging economies, we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated. If the null hypothesis of no cointegration is rejected, we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis. The results show support for cointegration in ten of the fourteen countries we consider, and the cointegrating vector is similar across countries. However, the parameters di§er from those suggested by theory. We relate our Öndings to existing literature on the failure of the expectations hypothesis and to the role of term premia.
Topic:
Economics and Interest Rates
Political Geography:
Global Focus

5855. Home Computers and Educational Outcomes: Evidence from the NLSY97 and CPS

Author:
Daniel O. Beltran, Kuntal K Das, and Robert W. Fairlie
Publication Date:
11-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Although computers are universal in the classroom, nearly twenty million children in the United States do not have computers in their homes. Surprisingly, only a few previous studies explore the role of home computers in the educational process. Home computers might be very useful for completing school assignments, but they might also represent a distraction for teenagers. We use several identification strategies and panel data from the two main U.S. datasets that include recent information on computer ownership among children -- the 2000-2003 CPS Computer and Internet Use Supplements (CIUS) matched to the CPS Basic Monthly Files and the National Longitudinal Survey of Youth 1997 -- to explore the causal relationship between computer ownership and high school graduation and other educational outcomes. Teenagers who have access to home computers are 6 to 8 percentage points more likely to graduate from high school than teenagers who do not have home computers after controlling for individual, parental, and family characteristics. We generally find evidence of positive relationships between home computers and educational outcomes using several identification strategies, including controlling for typically unobservable home environment and extracurricular activities in the NLSY97, fixed effects models, instrumental variables, and including future computer ownership and falsification tests. Home computers may increase high school graduation by reducing non-productive activities, such as truancy and crime, among children in addition to making it easier to complete school assignments.
Topic:
Crime, Education, and Science and Technology
Political Geography:
Global Focus

5856. A Note on Mundell-Fleming and Developing Countries

Author:
John Weeks
Publication Date:
03-2008
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper inspects the statement found in macroeconomic text books that under a flexible exchange rate regime with perfectly elastic capital flows monetary policy is effective and fiscal policy is not. The logical validity of the statement requires that the domestic price level effect of devaluation be ignored. The price level effect is noted in some textbooks, but not analysed. When it is subjected to a rigorous analysis, the interaction between exchange rate changes and domestic price level changes render the standard statement false. The logically correct statement would be, under a flexible exchange rate regime with perfectly elastic capital flows the effectiveness of monetary policy depends on the values of the import share and the sum of the trade elasticities. Monetary policy will be more effective than fiscal policy if and only if the sum of the trade elasticities exceeds the import share. Inspection of data from developing countries indicates a low effectiveness of monetary policy under flexible exchange rates. In the more general case of less than perfectly elastic capital flows the conditions for monetary policy to be more effective than fiscal policy are even more restrictive. Use of empirical evidence on trade shares and interest rate differentials suggest that for most countries fiscal policy would prove more effective than monetary policy under a flexible exchange rate regime. In any case, the general theoretical assertion that monetary policy is more effective is incorrect.
Topic:
Monetary Policy, Developing World, Capital Flows, Macroeconomics, and Fiscal Policy
Political Geography:
Global Focus

5857. Niebyl, Money and Development

Author:
Daniela Tavasci, Jan Toporowski, and Radha Upadhyaya
Publication Date:
04-2008
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper examines Karl Niebyl’s critique of monetary theory against the typology of equilibrium, reflective and critical theories of money. It argues that despite fundamental criticisms of monetary theory, his analysis of money in capitalist development is essentially a reflective one. The paper goes on to show how the development of the capitalist firm in the twentieth century may give a more critical, disequilibrium, role to money and finance. The introduction presents a categorisation of theories of money. The second section shows the reflective nature of Niebyl’s theory of money comparing it to more recent disequilibrium or critical theories. As Niebyl’s work focuses to the changing function of money with the emergence of industrial capitalism, the next section deals with possible lessons for understanding money in a context of capitalist development. The fourth section reflects on Niebyl’s considerations on methodology.
Topic:
Development, Monetary Policy, Capitalism, and Industrialization
Political Geography:
Global Focus

5858. The Economics and Culture of Financialisation

Author:
Jan Toporowski
Publication Date:
04-2008
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper examines some of the social, economic and political consequences of financial inflation for the activities of companies and the operations in debt markets of an increasingly financial middle class. In this paper ‘financialisation’ is broadly defined as the inflation of capital markets. The first section of the paper explains the Kalecki-Steindl theory of enforced company indebtedness in a middle-class society. The second section of the paper shows how financial inflation makes companies over- capitalised, resulting in a decline in the trend of long-term investment. The third section shows how forced company indebtedness is modified when the middle classes start to operate in inflating asset markets. A conclusion sketches out some of the consequences of this financialisation for politics, social policy, and moral and cultural attitudes.
Topic:
Culture, Finance, Social Policy, and Middle Class
Political Geography:
Global Focus

5859. Democratization and Civil War

Author:
Jack Snyder and Edward Mansfield
Publication Date:
02-2008
Content Type:
Working Paper
Institution:
Arnold A. Saltzman Institute of War and Peace Studies
Abstract:
Many observers have argued that promoting democracy abroad promotes peace. Mature, stable democracies have not fought wars against each other, and they rarely suffer from civil wars. But the path to the democratic peace is not always smooth. We argue that during the initial phase of a democratic transition, states face a heightened risk of civil war. When authoritarian regimes break down, a panoply of elite factions and popular groups jockey for power in a setting in which repressive state authority has been weakened, yet democratic institutions are insufficiently developed to take their place. This can lead to civil war through the lack of institutional means to regulate or repress factional strife. We test this argument by conducting a statistical analysis. The results indicate that countries in the initial stages of democratization are more than twice as likely to experience civil war as are stable regimes or regimes undergoing a transition to autocracy. Then we discuss the causal mechanisms linking democratization and civil war in cases drawn from the statistical analysis. These findings underscore the risks in trying to promote peace through democratization in countries that lack the institutions to contain factional and communal conflicts.
Topic:
Conflict Resolution, International Relations, and Democratization
Political Geography:
Global Focus

5860. States and Rules, Norms and Interests

Author:
Ian Hurd
Publication Date:
11-2008
Content Type:
Working Paper
Institution:
Centre for International Peace and Security Studies
Abstract:
The conventional separation in IR theory between instrumental behavior and legitimated norms as explanations for state action has discouraged the study of phenomena that include both. As a result important practices including hypocrisy, norm violation, and the strategic reinterpretation of rules and laws are under-examined. The source of the problem is the idea of 'internalization' of external rules and norms, which has come to define the distinction between rationalism and constructivism in IR, and between the logics of appropriateness and of consequences. I argue that internalization is problematic for empirical research in IR because it eliminates the possibility of strategic thinking by states in relation to international norms and rules. It leaves no room for instrumentalism around norms and so cannot account for norm violation, the strategic manipulation of norms, and the productive process of norm innovation. This is a problem equally for rationalism and constructivism. I argue for an alternative model that focuses on the practice of invoking international norms and rules and show that this approach allows new insight into the agent-structure problem, the relation between states and rules in world politics, and the relation between rationalism and constructivism.
Topic:
International Relations, International Political Economy, Sovereignty, and Political Theory
Political Geography:
Global Focus